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Trip Chowdhry of Global Equities Research today argues Apple (AAPL) may have upside in the present quarter given that it appears the company’s Mac computers are replacing some Sony (SNE) machines that are being phased out of corporate environments.

Chowdhry writes that it is “well known” that Apple had “blowout iPhone sales” in the December quarter, and goes on to say that he’s “uncovered” something else, without citing sources.

Writes Chowdhry, he has “discovered pickup in Enterprise IT Spend” and that “Apple Mac Account managers have been very busy in the last 2 weeks of December.”

From there, he expands to say “Comprehensive view is that Apple Mac’s are replacing the SONY installed base within the Enterprise,” with Sony having decided last February to exit the PC business.

Chowdhry claims to have found out that “Macs that are being purchased by the Enterprise is running Mac OS Yosemite and also Microsoft Windows 7 in the Virtual mode, running on VMWare Fusion product.”

He concludes that “probably there is about 500,000 to 750,000 Mac units sales upside possible for December’ 2014 quarter.”

Shares of Microsoft (MSFT) closed down 28 cents, or 0.6%, at $46.67, despite an upbeat note today from Pacific Crest’s Brendan Barnicle, who reiterated an Outperform rating on the shares, and a $58 price target, cheering several positive developments, and writing that Microsoft may be the only large software outfit to see profit margin expansion in 2015, based on a meeting he had with investor relations director Todd McCommon and investors on Friday.

Writes Barnicle, the company is being thorough in reviewing all costs:

Mr. McCommon maintained that the financial discipline has actually permeated throughout the company. Every project is being judged on its merits, and this year’s expense controls are not a one-time solution. Furthermore, we believe that the company will start to show ongoing margin improvement based on rationalizing the Nokia business. As a result, we have increased confidence that Microsoft can see margin improvement over the next several quarters.

Barnicle also likes the company’s newfound embrace of open source software technology:

Under Satya Nadella’s leadership, Microsoft had open sourced more of its code and utilized more open-source solutions, including MongoDB and Hadoop. Yet, despite the support of open source, Microsoft is seeing heightened interest in SQL Server. Oracle’s SVP, Andy Mendelsohn, actually made similar comments last summer.

Lastly, Barnicle thinks Windows 10, introduced in October, could be a strong upgrade cycle for the company:

Intel has suggested that as many as 600 million PCs might upgrade to Windows 10. Microsoft saw relatively weak adoption of Windows 8, but early reviews are encouraging for Windows 10. The Windows 10 upgrade cycle could be like Windows 7. While we believe it will not be as strong an upgrade cycle as the XP expiration cycle, Windows 10 could provide upside to our F2016 D&C licensing revenue estimates, which are currently modeled to be flat.

Shares of Microsoft (MSFT) are up 54 cents, or 1%, at $48.62, a day after the company’s annual shareholder meeting, and after an upbeat note this morning from Nomura’s Rick Sherlund, who reiterates a Buy rating on the shares, and raises his price target from $50 to $56, writing that the stock is “attractively positioned at the low end of the range on an EV/uFCF basis,” and that he expects the board of directors to soon “take up the issue of returning cash to shareholders.”

Sherlund notes Microsoft is “the largest cloud vendor” with its “Azure” computing service and its “Office365″ software, and that PCs are “stable.” He thinks the company could see profit rise above expectations if consumer offerings such as Bing search, Xbox gaming, and the former Nokia (NOK) phone unit see profit improvement.

All that means that as far as share repurchase is concerned, “We believe the Board may soon have this issue before them as a front-burner issue.”

Sherlund notes yesterday’s meeting brought five new directors to the board, and the stock has clearly anticipated some change in capital return:

The share price advance, in our view, has been driven by multiple expansion on optimism over shareholder activism and new management, a resulting new vision and strategy to move the business more aggressively to the cloud, tighter management of operating costs and expectations of a greater return of cash to shareholders.

Sherlund contemplates several scenarios for share repurchase, including large borrowing:

One possibility would be to do a leveraged recapitalization of the business. As an extreme scenario if the business could support 4 times EBITDA estimated at $36.6bn in calendar 2015 (Dell was taken private at 4 times EBITDA) this would imply gross debt capacity of nearly $150bn. If the rating agencies looked at the net debt (gave Microsoft credit for its $83bn of offshore cash) this would imply larger capacity or alternatively if the offshore cash were repatriated and taxed this could add an additional $60bn – $70bn, in theory bring the total to over $200bn or enough to repurchase over half the company’s stock. As a practical matter, this is likely beyond the capacity of the debt markets (Dell was much smaller) and would need to take place over multiple years. With Mr. Gates on the Board and his likely desire not to foreclose strategic options we might conclude a leveraged recap of this magnitude is a remote possibility even independent of the practical constraints of the debt markets [...] If the company were to borrow say an incremental $35bn or about 1 times EBITDA and retire 10% of the stock (along with some portion of the normal share repurchase program of about $8bn per year) this is viewed as likely to enable the company to preserve an A credit rating and perhaps increase the borrowing cost of the company by 40 bps or so from its current AAA rating, based on experience recently from EBAY and EMC.

But short of massive borrowing, existing cash flow trends support higher borrowing:

We estimate that Microsoft will generate operating cash flow of $31.5bn in fiscal (June) 2015. Allowing for capital expenditures of about $5.5bn per year (mostly for data center expansion to support its rapidly growing cloud businesses) we arrive at free cash flow of $26bn. The recently raised quarterly dividend of $0.31 per share implies about $10.5bn in annual payments and the share repurchases have averaged about $8.0bn per year. So the dividend and share repurchase would amount to about 70% of the FCF. We would then estimate that there is an ability to step up the share repurchase or do acquisitions with the remaining nearly $8bn in FCF.

How much can the multiple expand? Sherlund sees the stock having a low multiple at present when measured against free cash flow:

Investors often discuss with us the market multiple of Microsoft’s stock and question how much higher this may be able to go. If this is thought to be a constraint on the valuation, we note that the shares trade at EV/uFCF of 11.8x on our calendar 2015 estimates and a P/E ex-cash of 13.9 times.

Revenue in the three months ended in September rose to $23.2 billion, yielding EPS of 54 cents.

Analysts had been modeling $22.01 billion and 49 cents.

Microsoft stock is up 89 cents, or 2%, at $45.86, in late trading.

The profit figure includes 11 cents of restructuring expense. Excluding that expense, the profit number would have been 65 cents per share, against a Street comparable of 55 cents, according to Microsoft. Microsoft took more charges sooner than the Street expected this quarter.

The company’s “devices and consumer” business revenue, rose 17%, to $8.36 billion, with 25% growth in online subscribers to its “Office 365″ hosted productivity suite. That figure leaves out the mobile phone division, which includes the assets of Nokia (NOK) acquired this year, which generated $2.6 billion in sales in the quarter.

“We will continue to invest in high-growth opportunities and drive efficiencies across the organization to deliver long-term shareholder value.”

CEO Satya Nadella remarked,

We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth. Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization.

Update: During a phone call following the report, Microsoft’s director of IR, Chris Suh, was kind enough to spend some time going over the results, noting several bright spots.

Suh pointed out that the Surface Pro 3 sales this quarter marked the first time the product had ever reached positive gross margin for the first time this quarter. It made about $70 million in profit on that $908 million in revenue, said Suh.

Regarding the mobile phone unit, Suh said the business was “on track.”

He said Microsoft’s intention is to grow its share in the smartphone business, while managing the declining part of the businesses, feature phones.

Tablet sales growth is cooling rapidly, analysts at Gartnerannounced this morning. The firm today announced a forecast of 229 million tablets to be shipped worldwide this year, growth of just 11%, down from 55% growth in 2013.

Ordinary PC shipments, by contrast, may decline by 1% this year, for a total of 314.1 million units, Gartner expects. Total mobile phones, including smartphones but also simpler units, will rise 3%, to 1.86 billion units. In total, the “device market” made up of all these machines, will reach 2.41 billion units this year.

Here’s the Gartner table of all those device forecasts (click the image to see a larger version):

Gartner attributes the slowing in tablets to various factors, including people holding onto their Apple (AAPL) iPads longer than expected. Another factor is an improved profile for some “premium” PCs, such as two-in-one tablet/notebook models, of the kind that Intel (INTC) has promoted, which, should be music to the chip maker’s ears.

Says Gartner analyst Ranjit Atwal,

The device market continues to evolve, with the relationship between traditional PCs, different form factor ultramobiles (clamshells, hybrids and tablets) and mobile phones becoming increasingly complex. In the tablets segment, the downward trend stems from the slowdown in basic ultramobiles — new sales of iPads and Android tablets — and the lifetime extension of current tablets to three years by 2018. Gartner projects over 90 million fewer new tablet purchasers and 155 million fewer tablet replacements through 2018. Some tablet users are not replacing a tablet with a tablet, they are favoring hybrid or two-in-one devices, increasing its share of the ultramobile premium market to 22 percent in 2014, and 32 percent by 2018.

Interestingly, Gartner combines all the mobile devices — PCs, tablets, two-in-ones, phones, etc. — into one category of “devices” for the purposes of assessing operating system market share.

Shares of Microsoft (MSFT) are up 17 cents, or 0.4%, at $46.07, after FBN Securities’s Shebly Seyrafi this morning began coverage on the stock at Outperform, with a $55 price target, writing that despite a slow PC market, it has many charms, including “a valuable franchise with Office (~30% of revenue including Office 365, its cloud-based offering), its Azure cloud-based offering continues to grow well (Gartner notes that only MSFT Azure and AMZN’s AWS are in its Magic Quadrant for IAAS), its Xbox gaming business is growing rapidly, and its Internet assets (Bing, MSN, and XBox Live) are growing in value.”

Seyrafi sees several “catalysts” for the stock in coming months, including the next version of Office:

We believe that MSFT could announce Office 2016, the next-version of its on-premises Office suite (responsible for ~28% revenue last year, we estimate) toward the end of C2015, which would set up a strong catalyst for C2016 as well. We believe that the upcoming end-of-support for Windows Server 2003 (in July 2015) is a relatively small catalyst (we estimate Windows Server at ~7% of revenue in F2015, but many users are on annuity plans with upgrade rights which are not currently exercised). Additionally, MSFT’s visibility metrics have also been improving as its unearned (deferred) revenue in FQ4/June grew by a strong 12% Y/Y (leading to calculated billings growth of 19% Y/Y) and as its contract not billed (CNB) growth rate accelerated to 14% Y/Y in F4/June from 5% Y/Y growth in FQ3/Mar.

Seyrafi acknowledges multiple risks, including the still unproven “Surface” line of tablet computers; the unproven acquisition of the former Nokia (NOK) devices unit; the threat of “Chromebooks” running Google’s (GOOGL) Android software; and the prospect that PC sales could suffer because Windows 10 won’t be out until “the summer or fall of 2015,” he expects.

But Seyrafi likes Microsoft stock’s depressed multiple, at 17 times his estimate for $2.72 per share in net income this fiscal year ending in June, and 3 times expected revenue of $99.53 billion.

And he likes the company’s capital return program:

MSFT is a strong FCF generator, and it has been increasing its percentage of FCF allocated to dividends and share repurchases lately. For example, in F2013, it generated FCF of $24.6B (32% of revenue), and it distributed 49% of this back to shareholders (19% going to share repurchases and 30% going to dividends). In F2014, it grew its FCF by 9% Y/Y to $26.7B and it returned over $15B to shareholders, and this represented 57% of revenue (24% going to share repurchases and 33% going to dividends). We see MSFT maintaining returning around 50% of FCF to shareholders going forward.

Shares of eBay (EBAY) closed up $3.97, or 7.5%, at $56.63, after the company said it will divest its PayPal electronic payments unit in the back half of next year in the form of a tax-free spin-off.

Activist Carl Icahn, who agitated for the move earlier this year, expressed his approval, and activist Dan Loeb of Third Point was said by CNBC to have been involved behind the scenes.

Analysts opined that eBay shares might be worth $62 to $65 on as a sum of the two companies each trading at higher multiples.

Street response continued to filter in as the day wore on. Barclays‘s Paul Vogel opined that the timing was earlier than he though. He thinks the separation will “enable both entities to incentivize workers more effectively with stock tied directly to the performance of each segment.”

UBS’s Eric Sheridan, raising his price target to $64 from $60, said many questions remain, such as “what will be the shareholder return policy between now and 2H 2015?”

Apple also received some negative commentary, from Jefferies & Co.’s Sundeep Bajikar, who started the stock with a Hold rating, and a $110 price target, warning Apple is going to be hampered by the continued progress of Google’s (GOOGL) Android ecosystem, and by the advances of Samsung Electronics (005930KS) in developing flexible displays for mobile devices.

In the background, too, was the evolving European Commission probe of Apple’s tax practices in Europe.

Analyst Pierre Ferragu of Bernstein Research cut his rating on shares of ARM Holdings (ARMH) to Underperform from Market Perform, arguing the company’s royalties may not meet Street expectations. But Canaccord Genuity‘s Matthew Ramsay reiterated a Buy rating, writing that things are primed to get better for ARM’s royalties in 2015. The stock closed down $1.25, or 2.8%, at $43.69.

Shares of Facebook (FB) rose 4 cents to $79.04, as analysts contemplated the re-unveiling of Facebook’s “Atlas” ad-buying platform, which took front and center at this week’s Ad Week industry conference in New York.

Evercore’s Ken Sena, reiterating an Overweight rating, and a $95 price target, raised his revenue estimates for Facebook for 2015 to $17.2 billion, above consensus, given “we have increased confidence in Facebook’s ability to capture the opportunity we previously sized around ad networking and better attribution.”

In other Facebook news, Topeka Capital Markets‘s Victor Anthony reiterated a Buy rating on Facebook shares, and a $100 price target, writing that he’s been testing out Occulus Rift, the virtual reality technology Facebook acquired earlier this year. “We had been skeptics but after visualizing the potential opportunities, we are on-board,” he writes.

Things such as Using the headset to enjoy a near on-field experience of a football game,” and others “are all very real commercial use cases that Facebook could monetize.”

Microsoft with Windows 10 restored the “Start” menu button, whose dismissal from Windows 8 was much bemoaned by users.

Microsoft (MSFT) today formally unveiled “Windows 10,” the successor to Windows 8, at a media event in San Francisco, jumping past the “Windows 9″ moniker that many thought the company would use.

A technical preview for users will be available starting tomorrow.

In the accompanying press release, the company trumpets “familiarity and consistency across devices,” stating the software will run on everything from the Internet of Things to data center machines.

Daniel Ives of FBR & Co., reiterating an Outperform rating on Microsoft shares, writing that the event was “another step in the right direction” for the new regime of CEO Satya Nadella.

Ives is upbeat about Microsoft’s ability to spread Windows across multiple different device classes:

The focus around the new operating system appears to be consistent with management’s previous indications that it will target a more unified approach (e-commerce, developer platforms, store), while setting the stage as the most comprehensive Windows platform to date. To this point, we think a more unified Microsoft platform will be music to the ears of CIOs worldwide and could also open up massive opportunities on the consumer front (cloud, mobile, apps) over the coming years as the common user-interface across devices adds familiarity/ease-of-use. That said, the event was clearly geared toward Microsoft’s bread and butter enterprise customer, and we believe starting an early dialogue with these customers as well as learning from previous mistakes made in Redmond (e.g. Windows 8), will be key to garnering major adoption of this all-important product cycle in the field. Strategically speaking, we believe the company’s game plan around a more unified platform is centered on creating a tightly woven integrated ecosystem for its software across all devices (e.g., smartphones, tablets, PC), potentially laying the seeds to reignite growth in its core Windows business over the coming years.

Shares of Microsoft (MSFT) are down 10 cents at $46.34 as the company a short while ago announced at a media event in San Francisco that the next version of the Windows operating system will be called “Windows 10,” according to wire service reports. The new software will run across PCs and mobile devices such as smartphones and tablets, the company said. And, yes, it will restore the “Start” menu button dropped from Windows 8, the company said.

Shares of Microsoft (MSFT) closed up 3 cents at $46.44 in advance of a media event it is holding tomorrow in San Francisco, where it may unveil the new Windows 9 operating system.

Ed Maguire of CLSA reiterated an Outperform rating on the shares, writing that “We think the release will better bridge needs of business users, with less reliance on the touch interface and better integration of desktop and “modern” features.”

MKM Partners‘s Kevin Buttigieg reiterated a Buy rating, writing that not only will Win 9 bring back the “Start” button that was dropped in 8, but it will also start to merge the code base of various Windows versions, which will provide multiple benefits.

Shares of software maker Tibco (TIBX) closed up $4.14, or 21%, at $23.65, just below the $24 price at which the company agreed to sell itself to private equity shops Vista Equity Partners. Analysts suggested companies such as Red Hat (RHT) and Citrix Systems (CTXS) could also be targets amidst a rise in overall software M&A activity.

Tibco wasn’t the only activity: a Bloomberg story late in the day suggested Computer Sciences (CSC) was talking with private equity shops Blackstone Group (BX) and Bain about a possible leveraged buyout.

Shares of Intel (INTC) rose rose 64 cents, or 1.9%, to close at $34.90, after multiple endorsements of its mobile computing strategy. Merrill Lynch‘s Vivek Arya said the company’s loss-plagued mobile business unit will turn a corner in 2016, helped by investments in Chinese firms such as Rockchip and Spreadtrum.

B. Riley & Co.’s Craig Ellis also opined the Street is being too skeptical, that Intel will get a dramatic boost to earnings if it can succeed with such measures.

Shares of Apple (AAPL) rose as BlueFin Research PartnerssuggestediPhone production and sales may end up much higher than the Street thinks, based on their “checks” of the production landscape in Asia-Pac. The “bendgate” scandal about the iPhone 6 Plus from last week cooled somewhat as Consumer Reportscast doubt on the matter with its own tests showing durability.

But the stock was hit with worries about a possible fine in the billions that may be imposed by the European Commission for tax avoidance by Apple, as detailed by The Financial Times‘s Tim Bradshaw, Alex Barker and Vanessa Houlder.

But Ben Reitzes with Barclays, reiterating an Overweight view on the stock, opined in a note to clients that the whole matter is “overblown.”

“We believe the resolution of Apple’s tax position could take months or years, and that an initial fine will get adjusted over time,” writes Reitzes. “We view this news – like “bendgate” and other bumps in the recent phone launch – as buying opportunities that don’t impact fundamentals.”

Apples stock closed down 64 cents, or 0.6%, at $100.11.

Shares of Yahoo! (YHOO) closed down 14 cents, or 0.3, at $40.52, but got multiple thumbs up today, as Needham & Co.’s Laura Martin raised her rating on the shares to Buy from Hold, and B. Riley‘s Sameet Sinha raised his price target to $45, both of them encouraged by the sudden activism of Starboard Value LP, which is urging and end to acquisitions and a merger with AOL (AOL).

And shares of Alibaba Group Holding (BABA), in which Yahoo! holds a 14% stake, slipped $1.71, or 1.9%, to close at $88.75, after Susquehanna Financial Group‘s Brian Nowakinitiated coverage of the stock with a “Positive” rating, and a $110 price target, arguing it has the best aspects of Google (GOOGL) and Amazon.com (AMZN).

Multiple parties continued to ponder the prospects of enterprise tech vendor EMC (EMC) getting bought out or merging, with Pacific Crest‘s Brent Bracelin stating the stock has upside to $37 as a strategic target, and UBS‘s Steve Milunovich opining Hewlett-Packard (HPQ) might do well to merge with EMC.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.